Insights September 2020
Insights September 2020
- Prices have fallen to levels not seen in several years, increasing friction between buyers and sellers.
- The global macroeconomic outlook does not bode well for a recovery in wool prices this year.
At the end of August, season to date offer volumes were down around two per cent year on year, and down 19 per cent on the five-year average. The high level of friction between buyers and sellers has been well and truly on show thus far this selling season with 14.3 per cent of the season to date offering having been passed in. Although this figure is a decline from last season (21 per cent) it is still considerably higher than the five-year average (10.3 per cent).
In the short to medium term is also appears as though this friction will translate into lower offer volumes, as sellers hold back bales from auction during a period of lower prices and/or price instability. The subsequent stockpile of stored bales has the potential to stifle any recovery in prices, if/when the market gets back to a level where sellers look to offer/re-offer these bales.
The start of the 2020/21 wool selling season has seen the EMI break down through the 1,000 cent per kilogram level for the first time since the end of the 2012/13 wool selling season. The impacts of COVID-19 only continue to accelerate the decline in the wool market from the all-time highs reached two years ago.
In terms of breakdown by type, all types from 17 to 28 micron have seen declines of around 50 to 60 per cent from two year ago levels, with the EMI having fallen 55 per cent during this time.
The coming months will determine if 1,000 cents will emerge as a support level, as it did between 2010 and 2015, or whether we see a move back down to the 800-cent level, the support level from 2000 to 2010.
With China having largely emerged from their strict COVID-19 lockdowns earlier this year, appetite from Chinese buyers has been seen at wool auctions thus far this season. Chinese supply chains have already had a chance to ramp back up.
Particularly at the finer end of the market, a lower level of demand from European buyers has also been felt. The economic impacts of COVID-19 have translated to softer consumer demand for higher end products, such as woollen clothes. This is also likely to have a flow on impact on Chinese demand.
Last season China took 78 per cent of Australia’s wool exports, with sundry export destinations including India (five per cent), Italy (four per cent) and South Korea (three per cent). With the same underlying issues impacting Chinese demand also impacting these export markets, the prospect of a demand led rebound in the wool market this year looks highly unlikely.
Current estimates show the volume of greasy wool production declining ever so slightly this season, 1.1 per cent down on 2019/20 volumes. This is largely due to a decline in the number of sheep being shorn (down 5.2 per cent) with average fleece weights (up 2.9 per cent) set to benefit from a higher rainfall year.
Sources: AWEX, AWTA